Between all the work done by regulators and standard-setters, striking examples of potentially misleading “non-GAAP measures” aren’t as easy to come by as they used to be.

The AI company Anthropic recently provided a good one though, albeit falling into somewhat of a “hearsay” category as the company is privately held and doesn’t yet report publicly (it reportedly plans an IPO in the near future). This is as reported by Yahoo Finance:

• Anthropic has told investors it is profitable for a second straight quarter. The number holds only if you set aside the cost of building the next version of Claude (its flagship project).
• According to the Financial Times, the company handed the figures to a small group of backers, even as markets await the company’s planned Nasdaq listing.
• Based on the report, adjusted operating income is positive again this quarter. That measure strips out stock-based compensation, the equity Anthropic pays researchers instead of cash.
• Gross margins run above 80%. That figure is calculated before two things:
  • First, the cut Amazon and other partners take for reselling Claude.
  • Second, the cost of training models.
• In plain terms, Anthropic says it is profitable on the Claude models it has already built. It is not claiming to be profitable on the work of building the next one. That work is what the IPO is selling.
• Training is not a side project. It is how a new Claude comes to exist.
• …Revenue is growing fast enough to carry it. Sales hit $11.5 billion in the second quarter, 14 times a year earlier…

In May of this year, Ed Zitron had done his estimable best to grapple with some earlier reporting:

• Yesterday, the Wall Street Journal ran a story about how Anthropic is “about to have its first profitable quarter,” specifically an operating profit, or EBITDA profitability:
  • Anthropic’s revenue is set to more than double to $10.9 billion in the second quarter, an explosive rate of growth that will help it turn an operating profit for the first time.
  • Anthropic generated $4.8 billion in sales in the first quarter. Its quarterly revenue is now growing faster than Zoom did during the pandemic, and Google and Facebook in the run-up to their initial public offerings. It is set to turn an operating profit of $559 million in the June quarter.
• Interesting! That’s a lot of certainty considering we’re barely through the first half of the second quarter, and quite a specific number given the fact that June hasn’t started! And all of these numbers are mysteriously leaking exactly while it raises its funding round!
• Oh there’s also one important note: The Journal adds at the bottom of the article that “…it is unclear what accounting methods Anthropic has used to book revenue and costs, as the company isn’t yet required to follow the financial-reporting requirements of a public company.” That’s right —– Anthropic is possibly going to be EBITDA profitable for a single quarter, on a non-GAAP basis.

I won’t reproduce the entirety of Zitron’s analysis, but he concludes: “nobody does financial engineering and a press-led information war better than Anthropic. The willingness of the press to eat up incongruent numbers and the eagerness of many to jump up and find obtuse ways to explain away the obvious problems is only made possible when a company has perfected the art of manipulation and ingratiation of those who want to feel like they’re ‘first.’” He goes on, addressing himself directly to the “AI boosters” among his readers:

• Let me speak directly and with more empathy than usual: if you want Anthropic to win, you should be just as skeptical of these numbers as I am. You should want to smash my face in the tarmac with the most crystal-clear, impossible-to-argue with numbers, bereft of asterisks or discounts from suppliers or obfuscated accounting metrics. 
• You should want better from your heroes. If you truly think this company is amazing, unstoppable, and leading the tech industry to a glorious era of innovation, there shouldn’t be this many questions, and the metrics shouldn’t be this murky.  
• Every other time when a company has played this level of silly, weird bullshit has led to disaster — for example, WeWork claimed to be profitable since the second month of its operations, and repeated claims of profitability throughout its existence, and it turned out that it was only “profitable” if you removed things like “some of the costs of doing business.”
• I get why you’re so defensive, and I get why you want this to work. A lot of you are very excited about generative AI, and being excited about it has given you a tremendous community of equally-excited people. I get that you like these tools. 
• And I need you to know these companies are laughing at you. 

Since Zitron wrote that, the general mood regarding AI has darkened a bit, but not yet to a point likely to dampen the irrational exuberance he highlights. It’s rather bleakly ironic, and hardly encouraging, that a company claiming to be remaking our future in visionary fashion would feel it needs the help of such clunkily shopworn reporting tricks to continue its momentum…

The opinions expressed are solely those of the author.